Ultrabook: Intel’s $300 million plan to beat Apple at its own game

In an effort to blunt the (ARM-based) tablet threat, Intel wants PC makers to …

Welcome to struggleville

Let's start with Dell; I go to dell.com and search for a laptop. I want something like a 13" MacBook Air, so I tick "11 to 14 inches" and "< 5 lbs," Dell's ultralight category. I get back three largely indistinguishable machines, ranging from $999 to $1359. What's the difference between them all? I don't know, they all look like variants of the "Alienware M11x." It's confusing and overwhelming, not helpful.

It's even worse if I just browse without searching. The options I get are just... meaningless. Yes, I want "Everyday Computing," so I want an Inspiron. But hang on, I also want "Design & Performance," so I want an XPS. Wait a second, I want "Thin & Powerful," too. So maybe I want a Z Series? But the only line that apparently matches my broad search criteria—lightweight, 11-14"—I wouldn't even consider because I don't want a "gaming" laptop, and so I'm never going to click Alienware!

Is this the best way to sell laptops? Create a bunch of categories with arbitrary, overlapping labels, and just hope that buyers manage to fight through the system to find something that isn't wretched?

Maybe HP will be better... no, not really. Their site has some outright weirdnesses (yes, I'm in the UK, and yes, we're metric, but no, I don't want my screen measured diagonally in centimeters; we don't do that). The same odd labels cover everything—I know I don't want "Mini/Netbook," but I want both "Everyday Computing" (that term again) and "High performance" (because I don't want it to be slow, do I?). And who knows what "Envy" means? When I tick my screen size and weight boxes, I get back a crop of lousy netbooks that are almost the complete opposite of what I want.

Lenovo does things a little differently. It starts off with the same stupid classifications that must make sense to some guy in marketing—"Powered for productivity" and "Optimized for entertainment" and "No-nonsense features built for versatility"—but underneath, at least, it has a nice, neat table that lists all the variants and their major features or design points. It's a bit Excel as approaches go, but at least it's clear and concise.

And Lenovo needs the table, because wow—are there a lot of models to choose from. Seven different ThinkPad series—T, X, X Tablet, Edge, L, SL, and W—four IdeaPad series—V, U, S, Z—and the Essential G and B series. Within each series you typically have a range of screen sizes. 13" screens are regrettably rare, but the X series looks promising. Lightweight, 12.5" screens, long battery life, and, being ThinkPads, a glorious TrackPoint. This could be my new machine!

Weirdly, when clicking through to X series, a 13.3" screen is now an option after all; The table on Lenovo's UK site is just wrong. I examine the X220, the variant with the 12.5" screen, and it looks very nice, too. So I run through the configurator. I get that the "12.5" Premium HD (1366×768) LED Backlit Display, Mobile Broadband Ready, 2x2 Antenna" screen is better than the "12.5" HD (1366×768) LED Backlit Display, Mobile Broadband Ready, 2x2 Antenna." Fifty dollars gets me the word "Premium"—but what else? I click "Help me to decide" and get nothing even remotely helpful. And once I add Bluetooth, an integrated webcam, a 128GB SSD, and 802.11a/b/g/n Wi-Fi, the system cost comes to $1999. The 13" MacBook Air costs $1299! With a better screen, better Bluetooth, and better WiFi!

The Lenovo does have a much faster processor, but that's a lot of extra money for something with only a marginal benefit. The MacBook Air's better screen is much more valuable to me.

Maybe the X1 can fare better. At least it no longer has any unexplained screen options; 13.3" 1366×768 "Premium HD" is the only choice here. This is a stunt the configurator pulls multiple times, asking me to configure things that have no options and where all I can do is press "next." Once again, it all goes horribly wrong once I add a 128GB SSD, Bluetooth, and comparable WiFi. The machine now costs $1689, and this time the processor isn't even unequivocally better. It has a faster clock speed, but it must lose out in some other way, since it's a Core i3 (Apple ships only Core i5s and i7s). I suspect only Intel really knows what's going on.

So the three biggest PC OEMs in the world and none of them can match Apple for price or portability. All of them inundate me with irrelevant options, unexplained choices, and lists of apparently identical machines. And these are just their websites—imagine how complex their inventory and manufacturing systems must be to cope with all this. (Note: I examined the websites a few days ago, and I'm sure things have no doubt changed, as these things are wont to do; the specific examples may no longer occur, but equivalent problems still exist.)

I'm still left looking for, but unable to find, a non-Apple MacBook Air. What's holding the PC makers back?

OEM pushback

By the end of the year, several Ultrabook-spec machines should be on the market; the PC OEMs are responding to Intel's push, to an extent. But they're not exactly happy about the situation.

The PC guys aren't convinced that they can beat Apple's pricing. Apple sells the bottom-spec MacBook Air for $999, and we can only assume that it's selling the machines profitably. Apple's margins are famously high—a gross margin of 41 percent company-wide, though the PC margin is likely lower than the margin on the iPhone and iPad. Previous model MacBook Airs have had a margin estimated at between 28 and 37 percent; the current model is likely to be in the same ballpark.

In theory, it should be easy for the PC OEMs to match Apple. Intel insists that the manufacturing cost for 11-13", 18mm thick Ultrabooks should be between $493 and $710, while 14-17," 21 mm thick ones should cost between $475 and $650. If Intel's prices are accurate, there should be plenty of room to undercut Apple and still achieve reasonable margins. Sell machines for $949 and take home 25 percent gross? That's much healthier than Lenovo's current 12.5 percent average gross margin, for example.

Yet the PC OEMs say there's no way they can bring a product to market for less than Apple; even with slimmer PC margins, they can't get below $999. Instead, they're arguing that they need a 50 percent discount from Intel to beat Apple on pricing. Intel is willing to offer a 20 percent discount on its processors and marketing assistance, but it refuses to take the substantial margin hit that a 50 percent cut would require. Even if the chip giant did offer such a discount, it's difficult to see how it would help; the cheaper processors would just pad Apple's margins, or allow the Cupertino-based company to cut prices itself. Nobody wins in a race to the bottom.

The problem is that the PC industry, particularly the large OEMs, just aren't set up to produce this kind of machine. The PC industry is built around an idea of almost infinite variation: different Wi-Fi adaptors, different Ethernet chipsets, different GPUs, different USB3 controllers. This variety is then reflected in the systems available from manufacturers—and more importantly, it's reflected in the way the systems are actually built.

Consider Lenovo. Lenovo offers a range of different Wi-Fi adaptors in many of its systems. Instead of designing several different motherboards, each with a different integrated adaptor, it puts the adaptors themselves onto daughtercards and plugs them into a socket on the motherboard. The upside is that Lenovo can offer a lot of diversity, and the daughter cards can be standard Mini-PCIe components that anyone can use. The downside is that Lenovo has boards that are less integrated—hence larger—with more components and more complex manufacturing. Lenovo also has to buy smaller numbers of more adaptors than it would if it just picked one version and standardized. It also means that people buying Lenovo systems have to make dumb choices on the website.

This kind of approach doesn't work for Ultrabook machines.

Machines meeting the MacBook Air's specification can be built cheaply enough; Apple's managing it, and Intel's price estimates probably aren't too far off. But they require a different approach to PC building. For example, Apple's laptops use custom-sized lithium polymer batteries. These allow Apple to make the battery exactly fit the space available, maximizing battery life and minimizing space, but there's a downside of sorts: Apple can't use standard battery modules. Similarly, the MacBook Air uses a highly integrated motherboard, with almost all functionality built-in. This makes the board smaller and cheaper to produce, but it means Apple doesn't offer a wide range of processors, GPUs, WiFi adaptors, etc.

Apple has changed the way it builds systems. The company has boasted about it, in fact; when Steve Jobs talked about the unibody construction process used since late 2008, he was, in effect, telling the PC world "we've made this kind of investment—catch us if you can" (and so far, the PC companies can't). In 2010 he made the challenge again when he claimed that "We think all notebooks will look like these one day."

Apple didn't achieve this overnight; it was the result of close cooperation with its supply chain (changes driven by Apple's new CEO, Tim Cook), greater vertical integration, a deliberate policy of not shipping a million different models, and an absolute willingness to offer premium products at premium prices. That's why Apple, and only Apple, can now make the MacBook Air and sell it for $999.

Sell a million identical laptops a quarter and you can afford to change the way you build the machines. You can afford to spend more on design or manufacturing infrastructure. Apple never had a huge range of different systems, so reducing the variation and streamlining its manufacturing was probably more palatable than it would be for others. The traditional PC OEMs insist on a kind of pointless diversity, which means that they sell relatively low numbers of lots of models. They have no option but to stick with less highly integrated, less efficient processes. And this impacts their entire supply chain; it's set up to produce commodity parts assembled in standard ways, not specialized custom components.

This isn't just bad because they can't build Ultrabooks. It's bad for their customers—the very people that diversity is supposed to be for. The experience of buying a PC is at best second-rate, and the chance of finding the right PC, the one that best fits your needs, is low. My experience with the websites is not atypical, and the in-store experience is perhaps even worse; the same badly differentiated machines, but with a much lower chance of finding a good one.

Simpler manufacturing isn't the only virtue of Apple's approach. Apple can place larger orders for fewer kinds of components, and in so doing can secure better prices and consistent delivery. Perhaps the best example of this comes not from PCs but from smartphones, another market where Apple continues to command premium prices and fat margins, leaving its competitors to pick up the crumbs. Apple's willingness to place vast orders for components like flash memory means that suppliers are willing to put the company at the front of the line, at the expense of its competitors.